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Rs3,750 crore has been set as the minimum price for the auction of 3G spectrum in February. Photo: Mint
Rs3,750 crore has been set as the minimum price for the auction of 3G spectrum in February. Photo: Mint

3G spectrum: Telecom panel ignores Trai, sets high base price

The move is being seen as a way to raise additional revenue to meet the government's budget deficit target

New Delhi: The Telecom Commission, the nation’s top telecom policy decision-making body, has set 3,705 crore as the minimum price for a megahertz (MHz) of 3G spectrum for the proposed February auction, rejecting the recommendations of the telecom regulator to keep it lower as the government seeks to raise additional revenue to meet its budget deficit target.

The telecom panel’s base price is 36% more than the 2,720 crore suggested by the Telecom Regulatory Authority of India (Trai) last month and reiterated last week. The telecom ministry will likely seek cabinet approval for the 3G spectrum base price on Tuesday.

A successful spectrum auction, from which the government had initially estimated to raise 64,840 crore, is critical for finance minister Arun Jaitley as he seeks to meet the target of narrowing the fiscal deficit to a seven-year low. The government’s revenue estimate figure from the spectrum auction, however, does not include the sale of 3G airwaves. The 18,500 crore additional revenue that the government expects to raise by selling 3G spectrum will come as a windfall as Jaitley prepares to present the budget for the next fiscal year amid a shortfall in tax collections and revenue generated from stake sales in state-run companies.

The government seems to have made revenue maximization a priority, a move that may hurt the telecom industry, said Hemant Joshi, a partner at Deloitte Haskins and Sells. “The government should take a strategic view of the sector and look upon telecom as an infrastructure industry and GDP (gross domestic product) growth enabler."

The government will auction a total of 5MHz of 3G spectrum along with spectrum in the 800MHz, 900MHz and 1800MHz bands in the auction slated to begin on 25 February, the Telecom Commission has decided.

The auction is expected to get the government more than 80,000 crore if all spectrum is sold, including the 5MHz of 3G spectrum. Of the total 20MHz of 3G spectrum to be vacated by the defence forces, only 5MHz will be freed next month. It is unclear when the remaining 15MHz of 3G spectrum will be vacated by the defence ministry, a senior department of telecommunications official said.

The price fixed by the Telecom Commission for the 3G spectrum is also around 300 crore more than the price per MHz discovered in the 2010 auction where four slots of 5MHz each were auctioned.

On 5 January, the cabinet cleared the auction for spectrum in the 800MHz, 900MHz and 1800MHz bands. The telecom ministry subsequently published a notice inviting applications, the legally binding document detailing all the rules and regulations governing the auction, on 9 January.

The minimum price for the bands being auctioned are: 3,646 crore per MHz for 800MHz across India; 3,980 crore for 900 MHz band (excluding Delhi, Mumbai, Kolkata, and Jammu & Kashmir); 2,191 crore for 1800 MHz band (excluding Maharashtra and West Bengal).

Most of the spectrum in these bands is already being used by telcos and is coming up for renewal in November next year. This has led many of the operators to complain that if they don’t win back the spectrum they are using, they may have to shut operations in some circles, despite the huge investments in networks they have made.

This will be the fifth spectrum auction to be held by the government; it has garnered more than 1.8 trillion in bids from the earlier four.

Successful bidders will have the option of paying in tranches with 25-33% as the first payment, on being declared winners after which they can pay in 10 equated yearly instalments after a two-year-moratorium.

The final decision of the government regarding the auction price has disappointed analysts.

“These auctions are the first major regulatory action taken up by the new government. Trai’s industry-friendly proposals (to release more spectrum so that bidding is not irrational) had got many investors excited about a possibly favourable regulatory regime under the new government. However, the final decisions by the government (releasing less spectrum and expecting higher price) seem to project a purely commercial objective as the seller of the asset—and in this way no different from the policies of the previous government in its closing years," Sunil Tirumalai and Chunky Shah, analysts with Mumbai-based Credit Suisse Securities Research and Analytics wrote in a note last week.

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